Welcome Back Wednesday

I hope everyone had a great and peaceful Christmas. We had four of them which explains the brevity of this post. I'll be back in better or at least more long-winded form on the morrow.  

Commodity Watch:

  • Crude: closed up $0.82 at $94.13 in Monday's lightly attended session. Oil is trading up $0.50 in the early session.
  • Early Read On Inventories: Another Draw On Crude Stocks Seen (from the Dow Jones survey):
    • Crude Oil: 1.2 million barrel draw (fog in the Houston Ship Channel is expected to again hinder imports so the actual number could be very wide of the estimate as it has been several times of late).
    • Distillates: 600,000 barrel draw.
    • Gasoline: 1.6 million barrel build.
    • Refinery utilization is seen rising by 0.6% to 88.4%.
    • Note that the EIA report is delayed until Thursday at 1:00 pm EST.
  • High Seas Temporarily Shutter Mexican Export Ports: 2 of the 3 were closed on Sunday, the third was closed Sunday and Monday due to 8 foot waves caused by a cold front over the Gomex.
  • Canada Accuses Iran Of Shipping Weapons to Afghanistan. As if the country didn't already have a Guns-R-Us on every corner already. No effect on oil prices but worth mentioning as it could play a part in re-elevating tensions between Iran and the U.S. which had been leveling off of late.
  • Iraq Threatens To Cut Oil Shipments to Korea over Kurdish development. There's a lot of oil under the Kurdish held sands of Northern Iraq. And the new government of Iraq is peeved that the Kurds have seen fit to grant exploration and development licenses without so much as a by your leave to Baghdad. Could eventually be a problem for my favorite little swiss based, Canadian traded E&P Addax Petroleum (AXC.TO) but a dip in the shares would only create a buying opportunity in my mind.
  • Turkey Bombs Kurds in Iraq On Christmas. According to Bloomberg, Turkey went after camps run by the Kurdistan Workers Party or the PKK rebels on the Iraqi side of the border on the 25th and said that these attacks would continue.
  • Natural Gas fell $0.165 to $7.02 in Monday's session despite a larger than expected reading for gas-weighted degree days. $7 still remains the critical point with the potential for a flood of sellers entering the market with a breach below about $6.80. This morning gas is trading just under $7 in the early session.
    • For my part, I think we hold at or just below $7 and could see a substantial rally as the next two weeks of withdrawals push gas storage inventories well below last year's levels. If that turns out to be true I can think of  few more leveraged plays to gas than our holdings in (CHK), (SWN), and (SD) in the mid cap realm and (APC) amongst the "gas-majors". Other names that would benefit from a move from the low to the mid $7s but are not currently held are (EOG), (DVN), (XTO) and (KWK). NFX will also participate 

Stocks We Care About Today:

  • (PBR) - There's a news story out claiming costs associated with Petrobras' giant Tupi oil field will cost roughly $35 per barrel to develop. This should not be a shock to analysts and institutional holders as the reservoir lies below 1.5 miles of salt. The story goes on to say that technical hurdles must be overcome etc, etc. No doubt this is true. However, PBR has slated first production from a pilot development for 2013 so there is time. This will no doubt provide a steady source of work for high end, deepwater capable rigs as you may be able throw out numbers of 5 billion barrels plus on just a couple of wells but you certainly can't bring it all ashore without wellbores numbering in the high double digits. As a point of reference, according to the IEA development costs in the middle east run about $5 per barrel, with the Gomex close to $12 and the North Sea around $15

Odds & Ends

Analyst Watch: nada.

Canadian National To Buy Oil Sands Route. This is probably a bargain given the long term potential of the deal

Sakhalin-1 Production Already Set To Decline. XOM's big JV with Russia is now seen falling to 200,000 bopd in 2008 from 250,000 bopd in 2007 following Russia's decision not to expand the project. Sakhalin Energy also reported a 6 month delay for commencing LNG shipments to 2009. 

33 Responses to “Welcome Back Wednesday”

  1. 1
    Nicky Says:

    This move in the energy market has to be setting up for one HUGE fall sooner or later.
    This has to be a classic secondary top on weakening technicals ie non existent volume!

  2. 2
    Nicky Says:

    wti has resistance at 95.39 and 96.27. I am still not favoring a move to new highs here.

  3. 3
    Nicky Says:

    If the more bullish count IS playing out then we are in iii up and it looks like 5 up will play out as an ending diagonal.

  4. 4
    Nicky Says:

    Nat gas appears to be setting up soon for a big move down most likely a third wave.

  5. 5
    zman Says:

    volume in the stocks appears in general to be exceedingly light. Minor move higher in a little better than half the ones I track.

    Oil’s move exaggerated by a little short covering.

  6. 6
    Nicky Says:

    Volume is less than 20% of an average day in the energy market.

  7. 7
    Nicky Says:

    Distillates has resistance at 270.10 and 274.15.

  8. 8
    Nicky Says:

    I cannot find any bullish news for the market – surely they can’t be putting this crap down to the Turkish thing again? At the risk of repeating the oil pipelines are pretty insignificant in that region and a long way away.

  9. 9
    Nicky Says:

    That said technically again all markets are now breaking out….

  10. 10
    Popeye Says:

    HK looking strong today.

  11. 11
    zman Says:

    Thanks for the levels Nicky, looks like we’re alone in here today which is not surprising as their is just not much news about.

    Energy is mostly up, on oil but also on window dressing. PM’s want to be seen to have been in the deepwater drillers, large cap E&P and the solars….

    …no one wants to be in dry bulk which is too cheap for words and could reverse for a quick pop in the next two weeks but for now, its tax loss selling time and everyone who came to the party late is getting out before year end.

  12. 12
    zman Says:

    Popeye – agreed re HK, long calls and the stock there and plan to own more before their year end is reported…should have a phenomenal reserve report on the way as they’ve been nearly stealing those reserve adds and their drillbit has not been dull either.

    CHK moving higher as well.

  13. 13
    kiaora Says:

    Z–YGE looking a little toppy ??

  14. 14
    zman Says:

    K – I was just mulling a sale of half my position there. Normally I’d just dump half or all up 100% but I suspect that if the market stays quiet solar goes higher through year end….and this is the cheapest of the solars. Still, I will punt half or all if it touches $40.

  15. 15
    zman Says:

    DO up another 2.6% after reporting a problem on a rig working for PBR. Reaction seems a little odd since there was no initial, “holy crap” downward reaction to explain the reversal once it was known that everything was Ok. RIG getting much less respect today but both are trading at all time highs along with ATW.

  16. 16
    zman Says:

    wondering if my quote screen is accurate, seems we’ve been at about down 40 on the dow all day now.

  17. 17
    ram Says:

    RE the NG posting info: Did you trade APC?

  18. 18
    kaman Says:

    Z- I think you hit on it in #11…just a low volume day (yawn), the fresh meat must be manning the trading desks with marching orders “not to touch anything til I get back” (lol). I’m down on some holdings (like CME), but not going to panic out today. cheers-K

  19. 19
    cattleman Says:

    Z – Beef express about ready to hit the road. Will you be around for the next couple of days?

  20. 20
    zman Says:

    Ram – not yet.
    K- cheers, low volume = exaggerated moves.

    Cattle…yes and THANKS! Please send me a bill by email.

  21. 21
    apbd Says:

    Out some RIG before the holiday. Now with house money, I’m trading out one at a time as it ascends. Hope I’m doing the right thing.

  22. 22
    zman Says:

    A – at least you know you are doing the sensible thing. Was that you out at $13?

  23. 23
    apbd Says:

    Last one at $12.80. Now trying at
    $ 13.20. Paid for the wife’s gift.
    I haven’t had this much fun since October.

  24. 24
    scoop006 Says:

    Z would you expect DO to take a respite or continue it northbound journey

  25. 25
    zman Says:

    Scoop – would not at all be surprised to see it at $150 by tomorrow or Friday. I think it is pretty decently valued up though and the momentum may shift back towards RIG.

    PBR finally in the green after a morning dip on that story I referred to in the post. Still holding these as I think its got a good shot at $119 or $120 near term.

  26. 26
    ram Says:

    Z:HAL in your sights again?

  27. 27
    zman Says:

    wow RIG /DO

    HAL – yeah under $40 but I won’t add it this week.

    nice to have HK over 18

  28. 28
    jazzkool Says:

    Z, are the solars ever going to stop? I keep telling myself, this can’t last but I am afraid to sell because everytime I do (WFR, JASO et al), they go up 20 percent or more. WFR and STP are down today (STP just went up $.03 actually) but they could be up $3.00 tomorrow. I never bought your YGEs because I could not get in at your blast price, and then they went down but they are coming back strong.


  29. 29
    zman Says:


    Re solars, I think the hiccup comes sometime in June. For now, they are a must own for fund managers to have in their portfolio holdings at year end. I’ve been doing some reading over the holiday and there is, as you would expect, a wide variance in product margins, growth prospects, and valuations. YGE still is among the cheapest and has outperformed the group over the last three weeks or so but even seemingly expensive FSLR keeps going higher. I’ll have an updated table in tomorrow’s post with some more current thoughts on the group.

  30. 30
    scoop006 Says:

    Z Re #29 you mean June or Jan

  31. 31
    jazzkool Says:

    As usual, thanks Z.


  32. 32
    zman Says:

    Scoop…ooops, January. I can only see the future one expiration at a time, lol.

  33. 33
    scoop006 Says:

    Z U funny

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